The Federal Reserve is preparing for another quarter point interest rate hike

The Federal Reserve will raise interest rates by a quarter point on Wednesday, its 10th consecutive increase in just over a year, as pressure mounts on the US central bank to add time to its aggressive monetary tightening campaign.

At the end of its two-day meeting, the Federal Open Market Committee is expected to raise its key interest rate to a new target range of 5-5.25 percent, the highest level since mid-2007.

The meeting comes at a difficult time for the US economy and financial system, as mid-sized lenders continue to be squeezed after a series of bank failures.

First Republic on Monday became the third bank seized by U.S. regulators in the past two months as the Federal Deposit Insurance Corporation brokered a hasty takeover of JPMorgan. That was followed by government authorities in March, days before the last Fed meeting, to stem contagion after the collapse of Silicon Valley Bank and Signature Bank.

Officials on Wednesday will face the challenge of balancing a potential credit crunch from the banking turmoil with the fact that inflation remains stubbornly high and price pressures are only gradually easing.

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Meanwhile, the Fed is under increasing political pressure. In a letter Tuesday, 10 Democratic lawmakers urged Fed Chairman Jay Powell to refrain from further rate hikes, warning that more hikes could “trigger a recession, put millions out of work and crush small businesses.”

Fed policymakers are not expected to rule themselves out by ruling out further rate hikes. But most economists believe Wednesday’s hike will be the last for this cycle, especially after the Fed’s own staff slashed the outlook and predicted a recession this year.

In March, the FOMC signaled that “some additional policy tightening may be appropriate,” easing guidance in place since March 2022, when the central bank said “continued hikes” are needed.

Most Fed watchers expect the Fed to stick with its latest language or make modest changes.

Others believe the Fed may repeat the language it used at the end of its 2006 tightening campaign, when it said: “The extent and timing of any further tightening. . . it depends on the development of both inflationary and economic growth prospects”.

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Source: https://www.ft.com/content/1cf3225c-f3cf-46c1-aaa6-44501f7f5617